As the life insurance and annuity industries move toward model-based approaches to reserve and capital valuation (MBV), actuarial models are increasing in complexity and sophistication while the imperative to avoid modeling errors is also increasing. These MBV approaches include U.S. statutory Principle-Based Approaches (PBA), Solvency II, Market Consistent Embedded Value and proposed IFRS approaches. An extensive use of spreadsheets and open code modeling software, along with the number and complexity of model inputs, introduces a layer of uncertainty around the consistency and dependability of such models. In the new environment, the high reliance that companies and regulatory agencies will place on model results will require a well developed and maintained control system to assure the quality of all models and supporting processes.

The purpose of this project is to educate actuaries and other interested individuals on the current control practices being used within the life insurance and annuities industries and the company considerations for enhancing the controls under a principle-based framework for reserves and capital.

The researcher(s) will perform a survey of the control systems U.S. and Canadian life insurance and annuity companies have currently implemented for actuarial models. Focus should be directed to the inherent problems associated with:

• stand-alone desktop applications and spreadsheets,
• open and closed modeling software including management of assumptions, input parameters and data input streams; and
• spreadsheets that directly interact with modeling software.

A section of the survey should address company efforts to create models with controls systems robust enough to undergo regulatory and external audit scrutiny under MBV.

Utilizing survey results and other sources, the researcher(s) will evaluate the effectiveness of the current and planned control systems in the face of higher reliance placed on models needed for MBV. Since the new models will typically require a stochastic framework instead of the more easily audited formula driven structure of current systems, they may present different requirements not addressed with controls documented and evidenced for Sarbanes-Oxley §404 and Audit Guideline 43 (Canada) compliance. Special emphasis should be placed upon how companies plan to deal with the data intensive nature of both input and output of the new models coupled with the difficulty in directly auditing results. Given the emerging nature of the required analysis and resultant controls, in-depth analysis and commentary for enhancing current industry control systems and preparedness levels will add significant value to the final report.

The results of the research will be summarized in a written report suitable for publication on the SOA's website. The report at a minimum will include the following:

1. Summary of the survey questions and results
2. In light of the results and other sources, a discussion of the current state of actuarial modeling control systems within the U.S. and Canadian life insurance and annuity industries analyzing the effectiveness of the systems and industry preparedness levels under a MBV framework. Highlight any differences between the two countries.
3. Suggestions and considerations for enhancing a company's/ industry's actuarial modeling control systems given MBV.

It is expected that the researcher(s) will work closely with a Project Oversight Group (POG) in developing the survey questionnaire and meeting the objectives of the project. The researcher(s) will also provide the POG with periodic progress reports. Members of this group will be available to provide feedback and guidance to the researcher(s) as needed.

To facilitate the evaluation of proposals, the following information should be submitted:

1. Resumes of the researcher(s), including any graduate student(s) expected to participate, indicating how their background, education, and experience bear on their qualifications to undertake the research. If more than one researcher is involved, a single individual should be designated as the lead researcher and primary contact. The person submitting the proposal must be authorized to speak on behalf of all the researchers as well as for the firm or institution on whose behalf the proposal is submitted.
2. An outline of the approach to be used, emphasizing issues that require special consideration. Details should be given regarding the manner in which appropriate published material will be identified, search techniques to be used, collateral material to be consulted, and possible limitations of the review and analysis. Issues or considerations in the development and administration of the survey (ways to make the survey more manageable for respondents) should be discussed. Time periods proposed to be examined should be noted in this outline.

3. Cost estimates for the research, including computer time, salaries, report preparation, research costs, etc. Such estimates can be in the form of hourly rates, but in such cases, time estimates should also be included.

   Any guarantees as to total cost should be given and will be considered in the evaluation of the proposal. While cost will be a factor in the evaluation of the proposal, it will not necessarily be the decisive factor.

4. A schedule for completion of the research, identifying key dates or time frames for research completion and report submission.
5. Ideas regarding the form and distribution of the final report, both for immediate release and for permanent reference (e.g., submission to North American Actuarial Journal or other refereed publication, SOA Monograph Series, CD ROM).
6. Other related factors that give evidence of a proposer's capabilities to perform in a superior fashion should be detailed.

The SOA's Financial Reporting Section Council are responsible for the selection of the proposal to be funded. Input from other knowledgeable individuals also may be sought, but the sponsoring committees will make the final decision. The SOA's Research Actuary will provide staff actuarial support. A Project Oversight Group (POG) will be appointed to oversee the project.

Any questions regarding this RFP should be directed by fax or email to

Ronora Stryker
SOA Research Actuary
email: rstryker@soa.org
f: 847.273.8514

If you intend to submit a proposal, please send written notification
by November 18, 2011 to:

Jan Schuh
SOA Research Administrator
email: jschuh@soa.org
f: 847.273.8556

Please email a copy of the proposal to:

Jan Schuh at jschuh@soa.org

Proposals must be received no later than November 29, 2011. It is anticipated that all researchers who have submitted proposals will be informed of the status of their proposal no later than December 31, 2011.

Note: Proposals are considered confidential and proprietary..

The Society of Actuaries reserves the right to not award a contract for this research. Reasons for not awarding a contract could include, but are not limited to, a lack of acceptable proposals or a finding that insufficient funds are available to proceed. The Society of Actuaries also reserves the right to redirect the project as is deemed advisable.

The Society of Actuaries intends to copyright and publish the results of this research. The research will be considered work-for-hire and all rights thereto belong to the Society of Actuaries. However, appropriate credit will be given to the researcher(s).